19 July 2016, Lagos – Nigerian inflation accelerated to the highest rate in almost 11 years in June, complicating the task of the Central Bank of Nigeria, CBN, in an economy which is at risk of contracting this year.

The inflation rate in Nigeria’s economy increased to 16.5 per cent from 15.6 in May, the National Bureau of Statistics said yesterday.

That’s the highest rate since October 2005, according to data on the CBN’s website. Prices rose 1.7 per cent in the month. Nigeria imports at least 70 per cent of its refined fuel, despite pumping 1.6 million barrels of crude a day in June, according to the International Energy Agency, and faced fuel shortages as retailers struggled to getforeign currency to buy products during a 15-month naira peg that was removed last month.

The currency’s official exchange rate weakened to more than N280 per dollar, compared with the fixed rate of N197-199, and the naira trades at around 360 on the black market, increasing prices for consumers. National Bureau of Statistics in a statement, yesterday, said: “In June, the Consumer Price Index (CPI), which measures inflation, continued to record relatively strong increases for the fifth consecutive month.

“The Headline index increased by 16.5 per cent (year-on-year), 0.9 per cent higher from rates recorded in May (15.6 per cent). While most COICOP divisions, which contribute to the Headline index, increased at a faster pace, the increase was, however, weighed upon by a slower increase in three divisions: Recreation & Culture, Restaurant & Hotels, and Miscellaneous Goods & Services.

Core index

“Year-on-year, energy prices, imported items and related products continue to be persistent drivers of the core sub-index. The core index increased by 16.2 per cent in June, up by approximately 1.2 per cent points from rates recorded in May (15.1 per c ent). “During the month, the highest increases were seen in the electricity, liquid fuel (kerosene), furniture and furnishings, passenger transport by road, and fuels and lubricants for personal transport equipment.

“While imported foods continue to increase at a faster pace, the food sub index, on the aggregate, increased, albeit at a slower pace in June relative to May. The index increased by 15.3 per cent (year-on-year) in June up by 0.4 per cent from rates recorded in May. The index was weighted upon by a slower increase in the vegetables and ‘sugar, jam, honey, chocolate and confectionery’ groups.

“Month-on-month, the Headline index has moved in a sideways fashion since February, the first month of a pronounced increase in rates this year. Specifically in June, the index increased by 1.7 per cent, lower by roughly 100 basis points from rates recorded in May.”

According to Babajide Solanke, an analyst at FSDH Merchant Bank Ltd, “inflation will continue to rise because the driving factors are still there, but there should be a slowdown in the subsequent months. “Inflation may not necessarily cause monetary policymakers to increase rates, because that will hurt growth. They may choose to use other monetary instruments to tighten liquidity.”

The naira weakened 2.3 percent to 291 per dollar by 3:54 p.m in Lagos. The official exchange rate needs to move closer to that on the black market in order to boost investor confidence, Olusegun Sotola, head of research at Lagos-based Initiative for Public Policy Analysis, said by phone.

That would bring money into Nigeria and reduce the effect of inflation, he said. The average price for a liter (0.26 gallon) of gasoline was N148.5 ($0.52) in June, one percent less than in May, according to a separate report from the statistics bureau.

The June gasoline price was 32 per cent higher than a year earlier. Food prices rose 15.3 percent in June from a year earlier, compared with 14.9 percent in May.